Ethical Homes

That was the question posed to me recently by a visitor to my website.

I’ve been hearing similar questions enough recently that I thought I would post my reply for everyone to read:

It’s definitely very difficult for lower-income people to get into the housing market in the DC area at this point, mostly due to simple supply and demand issues—the amount of available housing remains relatively low (a study from George Mason University two years ago indicated that, with building rates staying constant, it would take literally decades before there was housing available for everyone who would want to purchase it in the DC area), while job growth (the DC job market is historically very stable, thanks to the influence of the federal government, and is actually currently the strongest one in the US) and low interest rates have kept demand very high, pushing prices up for all available housing.

Unfortunately, just because your current rent payments cover your landlord’s mortgage costs doesn’t mean that you would necessarily be able to cover the payments if you were to purchase the same property; since property values HAVE gone up so much in the last few years, the corresponding mortgage payments on new loans have (even with lower interest rates) also gone up, so a property that would have had a mortgage of, say, $500/mo before might now sell at a price that required a $1000/mo payment.

There IS some hope, though; many lower-income households are still able to purchase homes in the DC area. There are two basic keys to doing so: building up a sufficiently large down payment (every $1000 you can put down reduces the monthly payment by about $6), and making sure that your credit rating is as good as possible in order to get the best interest rate on your loan: you cut the monthly payment by about $8 for every $100,000 of the loan amount for every 1/8 of a percentage point lower your interest rate is; a $200,000 loan at 6% has a monthly payment of about $1200, then, while that same loan at 5.5% has a monthly payment of about $1136.

State and local governments can also help out; the city of Alexandria, VA, for example, has a program where qualified residents can get up to $35,000 in down payment assistance. Part of the program also involves attending homebuying seminars (where I sometimes teach, as it happens) that help prospective buyers figure out just how to get their credit rating as good as possible, and also discuss ways to budget and save—one of the hardest problems for lower-income buyers to overcome is the issue of living from paycheck to paycheck, and so the advice that those buyers get from the classes is invaluable not just in getting ready to buy a home but also in getting some perspective on their financial situation in general.

Even with those assistance programs, of course, it’s still not easy for lower-income people to buy a home; some would-be homeowners end up spending multiple years working on their credit and savings situations before they are able to buy. But it can definitely be done, so don’t lose hope.

If you’re interested in finding out about some of the housing assistance programs in your area, let me know, and I’ll be glad to send you some information.